Goldman: Marriott's Starwood Buyout Offer Briefly Below Market Pricing

Goldman Sachs’ Steven Kent maintained a Neutral rating on Starwood Hotels & Resorts Worldwide Inc HOT and Marriott International Inc MAR, with a price target of $66 on the former company and of $59 on the latter.

Revised Offer From Marriott

Kent mentioned that Marriot International increased its offer to acquire Starwood Hotels by 15 percent on March 21, to $79.53 per share from the earlier $69.31 per share. The new offer has a larger cash component.

The analyst pointed out that the revised agreement and the Interval Leisure Group, Inc. IILG transaction “now have a combined current value of $85.36 per share, which compares to HOT’s share price of $87.53 on 4/29/15, the day it announced it was pursuing strategic and financial alternatives.”

Marriott’s “Strategic Focus”

Although the acquisition would lead to benefits for Marriott International, Kent believes that these benefits might be offset by the challenges of integrating the operating, loyalty and reservation systems.

This in turn would increase the RevPAR index of Starwood Hotels’ brands, while bringing in the need to manage relationships with two timeshare companies.

Marriott International announced revisions to its SG&A synergies goals, raising its annual cost savings target from $200 million to $250 million, following the completion of further due diligence since the deal was announced.

On the other hand, the EPS accretion from the deal, which was earlier expected in 2017 and 2018, has not been pushed out, possibly due to the increased price of the deal.

In addition, the analyst noted that “MAR originally said that it could sell $1.5bn to $2.0bn in owned hotels over the next two years. Today, the company extended this goal to the next two to three years.”